Montreal Leather Company manufactures high-quality leather goods. One of the company's main products is a fine leather belt. The belts are produced in a single, continuous process in its Quebec plant. During the process, leather strips are sewn, punched, and dyed. The belts then enter a final finishing stage to conclude the process. Labour and overhead are applied continuously during the manufacturing process. All materials, leather strips, and buckles are introduced at the beginning of the process. The firm uses the weighted-average method to calculate its unit costs.
The leather belts produced at the Quebec plant are sold wholesale for $9.85 each. Management wants to compare the current manufacturing cost per unit with the market prices for leather belts. Top management has asked the Quebec plant controller to submit data on the cost of manufacturing the leather belts for the month of October. These cost data will be used to determine whether modifications in the production process should be initiated or whether an increase in the belts' selling price is justified. The cost per belt used for planning and control is $4.85. The work in process inventory consisted of 12,200 partially completed units on October 1. The belts were 45% complete in terms of conversion costs. The costs included in the inventory on October 1 were as follows:
Leather strips ................................. $3,000
Buckles ....................................... 750
Conversion costs ............................. 900
Total .......................................... $4,650
During October, 22,800 leather strips were placed into production. A total of 21,000 leather belts were completed. The work in process inventory on October 31 consisted of 14,000 belts, which were 50% complete in terms of conversion costs. The costs charged to production during October were as follows:
Leather strips .................................... $ 61,800
Buckles ........................................... 13,650
Conversion costs ................................ 62,100
Total ..............................................$137,550
Instructions
In order to provide cost data on the manufacture of leather belts in the Quebec plant to the top management of Montreal Leather Company, calculate the following amounts for the month of October:
(a) The equivalent units for materials and conversion costs
(b) The assignment of production costs to the October 31 work in process inventory and to goods transferred out
(c) The weighted-average unit cost of the leather belts completed and transferred to finished goods. Comment on the cost per belt that the company uses for planning and control.
(Adapted from CMA Canada, now CPA Canada)